Income Tax on F&O and Intraday Trading for AY 2026-27

F&O is non-speculative, intraday is speculative

• F&O trading (equity, index, currency or commodity derivatives on recognised exchanges) is excluded from the definition of speculation under Section 43(5). It is non-speculative business income taxed at normal slab rates.
• Intraday equity trading (buying and selling shares the same day without delivery) is a speculative business under Section 43(5).
• Both are reported under "Profits and gains of business or profession", but as two separate businesses with different loss rules.
• Delivery-based investing remains capital gains — see our capital gains tax guide.

How to calculate trading turnover (absolute profit method)

• Turnover is not the contract value of your trades. It is the absolute sum of profits and losses of each trade, with losses counted as positive numbers.
• For options, the realised profit or loss per trade is taken on the same absolute basis under the current ICAI guidance; the sale premium is not added separately when it already forms part of the computed profit or loss.
• For intraday equity, turnover is the sum of absolute daily profits and losses (absolute turnover).

When is tax audit under Section 44AB required?

Situation (FY 2025-26)	Audit position
Turnover up to Rs 10 crore, with cash receipts and cash payments each within 5% of totals (normal for exchange-traded F&O)	No audit required
Turnover above Rs 10 crore	Audit mandatory
Turnover above Rs 1 crore where the 95% digital condition is not met	Audit mandatory
Declared profits under Section 44AD earlier, opted out within 5 years, and total income exceeds the basic exemption limit	Audit can apply under Section 44AD(4) read with Section 44AB(e)

• A loss by itself does not trigger an audit. Many salaried traders with small F&O losses can file ITR-3 without audit, provided the conditions above are not breached.
• Section 44AD debate: presumptive taxation (6% of digital turnover, limit Rs 3 crore where at least 95% of receipts are digital) is technically available for F&O as an eligible business, but experts are divided on its suitability — declaring 6% of turnover as deemed profit is often higher than actual trading margins, and opting out within five years can pull you into audit. Take advice before choosing it.

Set-off and carry-forward of trading losses

• F&O (non-speculative) loss: set off in the same year against any income except salary — including bank interest, rent and capital gains. The balance carries forward for 8 assessment years, usable against business income in later years.
• Intraday (speculative) loss: set off only against speculative profits, in the same year or in the next 4 assessment years.
• Carry-forward is allowed only if the ITR is filed on or before the due date — 31 July 2026 for non-audit cases and 31 October 2026 for audit cases, for FY 2025-26.

Advance tax for traders

• If your total tax liability after TDS exceeds Rs 10,000 for the year, advance tax applies in four instalments — 15 June, 15 September, 15 December and 15 March.
• Traders who validly opt for Section 44AD presumptive taxation can instead pay the whole amount by 15 March.
• Shortfalls attract interest under Sections 234B and 234C. Use our income tax calculator to estimate liability.

Which ITR form should be used?

• ITR-3 is the form for F&O and intraday income, since both are business income. Trading results go into the P&L and balance-sheet schedules, with the speculative business shown separately.
• ITR-1 and ITR-2 cannot be used in a year you have business income, even if you are otherwise salaried.
• ITR-4 is possible only if you validly opt for presumptive taxation under Section 44AD and have no carried-forward losses to report.

Documents to keep ready

• Broker's tax P&L statement for FY 2025-26, segment-wise (F&O, intraday, delivery).
• Contract notes and the broker ledger statement.
• Bank statements for trading transfers, and details of expenses claimed (brokerage, STT, exchange charges, internet, advisory fees).
• Form 26AS and AIS — verify reported securities data using our AIS and Form 26AS mismatch guide.
• Previous year's ITR showing brought-forward trading losses, if any.

Get expert-assisted filing

All India ITR can compute your trading turnover correctly, check whether tax audit applies, prepare the business schedules of ITR-3 and make sure every eligible loss is preserved for carry-forward before filing.

File your trader ITR with an expert

Frequently asked questions

Is F&O income business income or capital gains?

Income from trading in futures and options on recognised stock exchanges is treated as non-speculative business income under Section 43(5) of the Income-tax Act, 1961. It is taxed at slab rates and reported in ITR-3, not as capital gains.

How is F&O turnover calculated for tax audit?

F&O turnover is the absolute sum of profits and losses on each trade, not the contract value. For example, a profit of Rs 80,000 on one trade and a loss of Rs 50,000 on another gives a turnover of Rs 1,30,000.

Is tax audit compulsory for F&O losses?

Not automatically. For FY 2025-26, audit under Section 44AB applies if turnover exceeds Rs 10 crore (where cash receipts and payments are within 5% of totals, which is normally true for F&O). Audit can also apply if you opted out of Section 44AD presumptive taxation within five years and your income exceeds the basic exemption limit.

How long can intraday and F&O losses be carried forward?

Non-speculative F&O losses can be carried forward for 8 assessment years and set off against business income. Intraday equity losses are speculative and can be carried forward only for 4 assessment years, against speculative profits only. The return must be filed by the due date to carry losses forward.

Sources reviewed

• Income Tax Department – Set off and carry forward of losses under the Income-tax Law
• Income Tax Department – Set off/carry forward of losses (e-filing help)
• Income Tax Department – Income Tax Returns (e-filing help)

This guide is for general understanding. Audit applicability and the Section 44AD choice depend on your full trading history and past filings, so confirm your specific position with a tax expert before filing.